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Gulf real estate sector will witness continued construction activity in 2016 due to accelerated financial and economic developments

With huge development witnessed in the regional real estate sector over the past few years, its role in many countries – mainly targeting investors and foreign investment – has become a key driver for setting the pace of economic activity and diversifying regional economies away from oil. Some additional roles include the levy of tax for countries from one financial period to another.

Foreign investment is often associated with inflation caused by foreign markets. It is often short-term investments that can spark fluctuations and losses, unless host countries manage these investments prudently and place adequate restrictions in place to lessen the severity of capital rapidly leaving the country.

It is Al Mazaya Holding Group’s opinion that 2016 will see decisions regarding qualitative investment in real estate and other sectors facilitated more easily. This is because real estate markets currently having an abundance of supply, with variations in demand categories. Therefore, regional markets need to target quality projects in order to ensure continued demand, with minimum fluctuations in prices and returns.

Consequently, economic efficiency and current stability and growth requirements of key sectors call for economic systems that are adaptable to market conditions and gross domestic product (GDP) – in all sectors. Focusing on highly productive and cost-effective projects, recoverability, productivity and contribution to GDP in the shortest possible time, will be the best solution for the region’s domestic economies. These factors will enable each market to resist pressure and ensure continuity and competition within the income-generating sectors and continue to attract foreign investment.

Al Mazaya Holding Company’s Weekly Real Estate Report is confident that the only constant in the accelerated financial and economic developments, in regional economies, is that the real estate sector – at the beginning of 2016 – is witnessing a continued increase in construction projects. These upward trends reflect a continued strength of current and projected demand and, depending on feasibility studies and market forecasts prior to implementation, will ensure the success of all real estate projects.

The improvement of the returns rate, particularly rental returns, will have a positive impact on the sector, taking into account the fact that the gradual decline, recorded in property prices in some markets, is no more than an expected correction. The Al Mazaya Report sees this as a healthy phenomenon that comes after the highs recorded in prices over the past two years. It is, therefore, expected that regional economies continue to maintain targets for economic activity during 2016.

Saudi Real Estate Market: Aspirations for an Active Role of the Private Sector

The Al Mazaya Report asserts that regional real estate markets must keep up to date with emerging changes in government decisions and the private sector’s ambitions, in a timely manner. Saudi real estate market indicators show that 2016 will benefit greatly from the decisions and direction of the Saudi government and the Kingdom’s burgeoning private sector.

Over the past year, the real estate market has benefitted from a raft of quality government-led decisions that will have a significant and positive impact on the real estate sector in the coming years – the imposition of fees on undeveloped land within urban areas being one such example.

The sector will also benefit from an improved level of partnership between the Ministry of Housing and the private sector for constructing housing projects, in all cities across the Kingdom. This partnership signals an improvement in the sector’s ability to attract domestic and foreign investments, marking the start of efforts to correct the market’s conditions and increase foreign private sector investment.

The foundations for a new real estate boom is possible if solving the dilemma faced by the housing market is matched with new real estate products that meet the various needs of the Kingdom’s citizens and residents. It is worth mentioning here that the project for the construction of 500,000 housing units, in KSA, is still in force, with the government having allocated SAR 250 billion to be spent over five years, from the start date of the project.

Meeting Demand for Residential Real Estate Units is a Priority

The Al Mazaya Report can state that the majority of markets in the region, in 2015, suffered from an oversupply of real estate products and yet, at the same time, there is also a shortage of supply in certain sectors. For example, there is a shortage of medium and basic real estate units while there currently is an abundant supply of luxury residential units and office properties.

The largest proportion of investment units that were handed over during 2014-2015 was in the Bahraini real estate market. The real estate situation in the island Kingdom remains very reassuring, especially in residential real estate and land, with land and housing projects increasingly geared to low-income people. It should be noted that the recent decline in the prevailing prices, ranging from 10 to 20 per cent, will only be for a limited period and 2016 will remain a sound investment period for Bahraini residential real estate.

Bahrain also has a need for large housing projects, a figure that currently stands at around 55,000 units. This level of demand reflects the need for residential land and the need of citizens to buy properties in view of the limited area of the Kingdom’s lands and its population growth. Quality projects, therefore, will help the kingdom to overcome such challenges in the coming years.

Focus on Foreign Investment in order to Face Liquidity Pressures in the Real Estate Market

The Al Mazaya Weekly Report stresses that the residential sector, in terms of selling and leasing, is a key sector among all of the region’s markets and it is the residential sector that continues to set the pace of activity and demand for other real estate products. This poses short-term challenges to the UAE real estate market, in terms of both maintaining and building upon recorded successes. Changes in the sources of demand and the rise in the supply of real estate units and products may also be affected by a potential recession.

While the available indices point to a projected correction in the sale and lease rates of real estate, particularly in the emirates of Dubai and Sharjah, leasing and selling rates remain on the rise in Abu Dhabi, with fluctuations ranging from 10-15 per cent – in both directions.

The UAE real estate market, for 2016, will benefit from a strategic “return to basics” to determine the sources of demand and allow clearer targeting plans when starting new projects. Such measures should prevent an over supply of units.

Circulating data suggests that the real estate market in the emirate of Abu Dhabi will witness the hand-over of a large number of real estate units during 2016. Predictions range from 12-15,000 units, compared to 10,000 units delivered in 2015.

Assigning a Greater Role to the Qatari Private Sector in order to Achieve National Development Goals

Qatari real estate market developments are reflected in the 2016 budget with a continuation of infrastructure spending; these include schools and hospital projects as well as residential housing.

Spending will, of course, support the real estate sector’s growth, which subsequently establishes an investment climate that is capable of attracting funds, taking into account the need to assign new or additional roles to the private sector.

It should be emphasised here that the clarity of the plans and goals in Qatar’s Development Roadmap 2022, also requires Qatari real estate development companies to set goals reflecting the development of the private sector’s capacity to deliver new investment sources.

The Qatari real estate sector currently includes projects under construction at a value of QAR 261 billion, with infrastructure, transportation, sport, electricity, water and other important sectors driving growth.

The Al Mazaya Report recognises the importance of the contribution of current and upcoming projects in finding radical solutions for the domestic real estate market in order to be able to target foreign investment in 2016.

Completed projects and those in the hand-over pipeline must succeed in overcoming all existing challenges and it will be necessary for regional real estate markets to find the tools and mechanisms to mitigate the flight of domestic capital towards global real estate markets. This can be achieved by improving the attractiveness of real estate products and greater coordination and partnership between the public and private sectors. This also involves encouraging more investment-friendly laws, maintaining financial and economic stability, as well as creating marketing and promotional tools and mechanisms that are more efficient and in line with the developments recorded in the financial and economic systems over the past year.